The much-anticipated announcement turned out to be a big letdown. The New York Timeshighlights that the administration’s plan to rescue the nation’s financial system that was unveiled by Treasury Secretary Timothy Geithner “is far bigger than anyone predicted and envisions a far greater government role in markets and banks than at any time since the 1930s.” The administration said it’s committed to spending as much as $2.5 trillion in the effort. But Wall Street quickly gave the plan “a resounding thumbs down,” as USA Today puts it, because it was short on some very key details that made clear the plan is very much a work in progress. The Wall Street Journal points out that the markets experienced the worst sell-off since President Obama moved into the White House as stocks plunged nearly 5 percent sending the market “to its lowest level since Nov. 20.”
Investors weren’t alone in their unhappiness with the plan. Lawmakers were also quick to criticize Geithner for failing to provide more details on how the administration plans to deal with the ongoing mess. “What they did is over-promise and under-deliver,” the head of a private investment firm tells the Washington Post. “They said there was going to be a plan, so everybody expected a plan. And there was nothing.” The Los Angeles Timessays that the lack of details in the announcement “reflects a double bind for the Obama administration.” It’s become clear that the problems in the financial system are bigger than expected and could require more money to fix, but at the same time Congress has grown even angrier at Wall Street, which makes it highly unlikely that lawmakers would approve more funding for the effort.
Most of what was announced by Geithner yesterday was already known. He outlined a multipronged approach to fix the financial system that included a private-public partnership to get bad assets out of banks’ balance sheets, a new round of direct cash injections into ailing banks, and an expansion of a Federal Reserve program to increase consumer and business lending. The NYT points out that the administration “would stretch” the remaining money in the bailout plan “by relying on the Federal Reserve’s ability to create money, in effect, out of thin air.”
Investors were particularly curious to hear how the administration intends to implement the plan of joining public and private money to buy toxic assets—the NYT is alone in calling it a “bad bank“—but all Geithner could say is that the administration is “exploring a range of different options.” Investors are still finding it difficult to understand how this private-public cooperation would succeed in setting a price for the bad assets that would be agreeable to both buyers and sellers without a huge government subsidy. The administration was also able to provide only the most basic outline of the review that is planned of the largest banks to determine how much trouble they’re in and how much help they need. This “stress test” is supposed to help the government “shed light, for the first time, on the true extent of the toxic asset problem,” notes the WP.
White House officials insisted the lack of details in the plan was intentional because they want to make sure everyone has time to give their views before the plan is fully formed. The previous administration was highly criticized for haphazardly changing plans in midstream without consulting Congress, and that’s exactly what the Obama team wants to avoid. The WSJ has some interesting insight into why the administration might be taking so long to settle on a final plan. By deciding early on that they wouldn’t consult heavily with former Treasury Secretary Henry Paulson’s team, administration officials ended up spending weeks trying to figure out some of the same issues that had confounded their predecessors. White House officials also were reluctant to consult Wall Street so it wouldn’t look like it was a plan developed by the industry. Bank executives hope they’ll get more of an input now that Geithner has made his announcement.
Geithner harshly criticized the previous administration’s approach to the crisis yesterday. But in outlining his proposal “Geithner seemed to be following the Hank Paulson playbook,” says the WP in an analysis piece. The few items in Geithner’s plan that were new “came with so few details about how they would work that it contributed to the very public anxiety and investor uncertainty that Geithner criticized,” notes the Post. The paper points out that the parts of the plan that had the most detail “are direct continuations of rescue efforts undertaken by Paulson.” It’s therefore no surprise that Sen. Richard Shelby, the senior Republican on the Senate banking committee, said the proposal outlined by Geithner looked like “son of Paulson.”
In a front-page column, the LAT’s Michael Hiltzik says that Geithner, “perhaps unwittingly,” made it clear that the new administration is finding it difficult to find answers to the same “issues that confounded their Republican predecessors in fashioning a bank bailout.” But Hiltzik thinks we should cut Geithner some slack because “a financial bailout can’t take place on CNBC time.” The WP’s Steven Pearlstein warns that the criticism from Wall Street shouldn’t be taken too seriously because traders and executives won’t be happy until the government agrees to pick up the tab for all their mistakes “so they can once again earn inflated profits and obscene pay packages by screwing over their customers and their shareholders.”
While Geithner was short on details, over on Capitol Hill it’s all about the details. As expected, the Senate approved the massive stimulus package yesterday, so now congressional negotiators must begin their high-stakes discussions to come up with a compromise bill that they hope to get to the president by the end of the week. The White House wants to restore some of the spending that was cut out of the Senate bill, but it’s a risky proposition because it could mean losing the support of moderate Democrats and Republicans in the Senate. Negotiators are aiming to bring the cost of the final package down to $800 billion. The three Senate Republicans who supported the bill, along with some Democrats, said they’re ready to vote against the stimulus if House Democrats manage to add more spending to the package.
Almost all the papers front the mass confusion in Israel that resulted after voters went to the polls and failed to give anyone a clear edge. With almost all the votes counted, the centrist Kadima Party, led by Foreign Minister Tzipi Livni, unexpectedly won the largest share of parliament with 28 seats. But Kadima appeared to win only one more seat than the more conservative Likud Party, led by Binyamin Netanyahu, and the parliament as a whole experienced a sharp rightward shift. Now it’s unclear who will be the next prime minister, and both Netanyahu and Livni claimed victory. The leader of the party that gets the most votes is usually given the first chance to create a coalition government, but that might prove to be an impossible task for Livni given that the right-wing bloc appears to have won many more seats. The negotiations could take weeks.
Regardless of whether Livni or Netanyahu gets the prime minister job, Obama’s desire to start working on a peace process between Israel and Palestinians “suffered a significant setback yesterday,” notes the Post in an analysis piece inside. The parliament’s significant rightward shift means that even if Livni, who has spoken up in favor of negotiating with Palestinians, manages to form a government, it’s likely that she “will be hamstrung by her coalition partners.” The Post points out that the division in Israel “mirrors the split within the Palestinian government” between Hamas and Fatah on whether to pursue negotiations and work toward a peace plan. The divisions in both societies are so great “that few believe either the Israelis or the Palestinians can muster the will to reach a deal.”
The WP’s Kathleen Parker says that the first days of Obama’s presidency “have been a study in amateurism.” The new administration is lacking maturity, and Obama still “wants too much to be liked” when that is often the price of being president. “Giving up being liked is the ultimate public sacrifice.” It’s beginning to show that “the young senator from Illinois became a president overnight, before he had time to gain the confidence and wisdom one earns through trials and errors.”
Not so fast, says the WP’s Ruth Marcus, who writes that the first few days of the administration are “actually going rather well.” Sure, there have been problems, but expecting that a new administration would be able to put together such a massive stimulus package without any problems “is like expecting a first-year med student to perform surgery—before the stethoscopes have been handed out.” And it’s clear that Obama has achieved more in his first few days than either of his two predecessors. “So if you’re feeling jittery about Obama’s start, ask yourself this,” writes Marcus. “Is there another president in recent memory who would have done better?”